Interpreting Interpersonal Valuations
An economist is studying two individuals, Alice and Bob, who both have preferences for park acreage (a) and a composite consumption good (c, measured in dollars). Alice's preferences are represented by the utility function U_A(a, c) = 10√a + c, and Bob's are represented by U_B(a, c) = 20√a + c. The economist claims that for any given amount of park acreage, Bob values that acreage twice as much as Alice does. Analyze this claim. Based on the structure of these utility functions, what can you definitively say about their relative valuations, and what are the limitations of this comparison?
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Ch.5 The rules of the game: Who gets what and why - The Economy 2.0 Microeconomics @ CORE Econ
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